The importance of whistleblowers - Speech, House of Representatives

HOUSE OF REPRESENTATIVES, 18 FEBRUARY 2019

Whistleblowers play an important role in enforcing our corporate laws. When investigative journalist Bastian Obermayer received millions of leaked files from Panamanian law firm Mossack Fonseca, he set in place events which would shake the foundations of many tax structures around the word. The release of the so-called ‘Panama Papers’ showed that shell countries were perpetrating tax fraud and dodging global sanctions. It led to the resignation of the Icelandic prime minister and other prominent officials. Within Australia, the Australian tax office began investigations into 800 people identified in what became known as the Panama Papers.

Indeed, the very notion that whistleblowers may be protected and even rewarded provides an incentive for firms to do the right thing. A recent economic study by Eli Amir, Adi Lazar and Shai Levi looked at Israel's tax whistleblowing scheme and found that it significantly increased the amount of tax paid, particularly in industries that were especially prone to tax evasion.

Once firms knew that there was an incentive for employees to report tax dodging, the amount of tax collected increased significantly.

Whistleblowers play a role which has been argued by some to be more important than auditors in detecting corporate fraud. Analysing hundreds of cases of US corporate fraud, a study by Alex Dyck, Adair Morse and Luigi Zingales found that the Securities and Exchange Commission caught just seven per cent of those cases. Auditors detected 10 per cent, the media uncovered 13 per cent and employees exposed 17 per cent. On that metric, employees were exposing more than twice as many corporate fraud cases as the Securities and Exchange Commission itself. So it is critical that those who blow the whistle shouldn't be punished, and it's vital that we ensure that there is not inappropriate blowback against whistleblowers. One study found that four-fifths of employees who disclosed corporate fraud were fired, quit under duress or had significantly altered responsibilities. Given this, as Alex Dyck and his co-authors note, 'The surprising part is not that most employees do not talk; it's that some talk at all.'

This bill is a modest step towards protecting whistleblowers. It ensures, in limited circumstances, that disclosures to the media and parliamentarians are protected. But it only protects corporate and financial sector whistleblowers who go to the media after first going to the regulator and where there is a risk to human life or safety, or a threat to the financial system. This bill doesn't protect external disclosures to tax whistleblowers. That's why, as the member for Hotham has said, Labor will recommend a Senate inquiry to investigate the limitations of this bill. As Professor AJ Brown, a leading expert in whistleblower protections has said, this bill is 'a limited step' and 'more a sideways than a forward step on key issues'.

It has been, by contrast, Labor that have led the debate around ensuring appropriate protection and rewards for whistleblowers. We've said that, if elected, we'll set up a whistleblower reward scheme, establish a whistleblower protection authority, overhaul our whistleblowing laws with a single whistleblowing act and fund a special prosecutor to bring corporate criminals to justice. The issue of whistleblowers has been highlighted in the banking royal commission, in which a number of the key disclosures were only possible because whistleblowers and bank victims came forward and because Labor listened and from 2016 began to call for a royal commission into the banks, which was voted against 26 times by this government.

Blowing the whistle on crime and misconduct is incredibly difficult. Those who do so face reprisals, and many choose not to come forward because they are concerned that they might suffer as a result. So Labor have said that, in the case of whistleblowers, we believe it's appropriate for them to receive a part of the penalty. We announced this policy in the case of tax cases two years ago, and it was announced in the case of corporate fraud cases by the Leader of the Opposition, the shadow Attorney-General and the shadow minister for financial services on 3 February. We've said that the relevant investigatory or law enforcement authority will have the discretion to determine the level of the reward within a legislated range, and it will be funded by additional penalties collected by the government.

It has been, however, described by the Minister for Jobs and Industrial Relations, Kelly O'Dwyer, as a ‘whacky’ proposal. Well, let's look at how ‘whacky’ it is to reward whistleblowers. I's so ‘whacky’ that it's been done since Roman times in the form of qui tam lawsuits. It's so ‘whacky’ that it was done by Britain for a number of years. It is so ‘whacky’ that it has been an established part of the US system under the False Claims Act, known as the Lincoln Law, for decades. Americans who reveal fraud against their government can collect between 15 and 30 per cent of the money recovered, and since being revamped in 1986, the False Claims Act has recovered more than $40 billion from people who rip off the US federal government.

There's a similar US whistleblower program for tax cases, which has paid out millions of dollars to informants who reveal tax evasion.

Those opposite are very fond of saying we should go down the American path when it comes to low regulation or cutting corporate taxes or having an inadequate public healthcare system. But when it comes to learning from the United States' False Claims Act, they think it's utterly ‘whacky’. Well, Labor takes a different view. Labor believes that amending the law to provide greater protection for whistleblowers is appropriate. In the case of those who blow the whistle and lead to more corporate tax paid, the reward would range up to $250,000. Based on the research by Alex Dyck and co-authors, we expect that would uncover tax fraud that would otherwise have remained hidden. Based on the research by Elijah Amir and co-authors, we expect it would otherwise lead to firms behaving better than they would have done. We know that whistleblowers can play a valuable role in cracking down on the role of tax havens. Tax avoidance by millionaires and multinationals using tax havens like Panama is a clear and present danger to the global tax base. If we didn't have a whistleblower within Mossack Fonseca then some of their clients would still be bilking the Australian tax payer.

The fact is we need crack down on this egregious form of corporate fraud. Through appropriate whistleblower laws, we can do that. This bill is a very modest step relative to what experts like AJ Brown have advocated. This bill may well improve the regime around whistleblowers but certainly doesn't provide the comprehensive protections that Labor has called for. It doesn't provide the rewards that Labor has called for. It doesn't ensure that we properly crack down on corporate malfeasance.

What was extraordinary during the debate was hearing the member for Hughes say there ought to be more focus on this. To know how much focus there is on this, you need to look at the speaking list. It shows that for every coalition speaker, there are three Labor speakers willing to speak out on whistleblowing. We are willing to come in here, make a strong case for action on whistleblowers; the member for Hughes can't even get through 15 minutes talking about whistleblowers. He has to go off, wandering around like Brown's Cows, talking about the tax scales. We on this side of the House are focused on the issue of whistleblowers. We will put in place, under a Shorten Labor government if we're fortunate enough to win the election, tough and comprehensive laws for whistleblowers, which will ensure they do their job of protecting Australians from corporate rip-offs, from tax rip-offs, from the sharks and the shonks which used to be the target of the Liberal Party, but these days make up its base.

ENDS

Authorised by Noah Carroll ALP Canberra


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